(Bloomberg) -- The blistering rally in global animal-feed markets is beginning to spill into the pandemic-battered U.S. hog sector.
Chicago hog futures rose nearly 7% in the past four sessions to reach the highest since October, while U.S. Department of Agriculture data showed U.S. pork prices prior to the New Year's Day holiday jumped 8.2%, the most since September.
The gains are a turnaround from 2020, when the spreading coronavirus sickened meat-plant workers and prompted shutdowns at pork facilities. The increase comes as corn and soy markets surged to six-year peaks amid dry weather for crops in South America and soaring demand for hog feed in China. With China's herd recovering from the African swine fever outbreak, sales by the Asian nation's biggest hog breeder increased by 75% in 2020.
“Hog producers suddenly have a new dynamic to deal with: high feed prices,” said John Payne, a senior futures and options broker at Daniels Trading in Chicago.
Some U.S. hog farmers responded to the Covid-19 disruptions by euthanizing animals. The U.S. breeding herd in December fell and animal weights have started to ease as it gets more expensive to feed them.
Hog prices will likely lag feed markets, but should still track them higher, according to Payne. Economic recovery from virus shutdowns as more people receive vaccines should help drive consumption of pork products.
“Increased global demand for food should keep the pork cutout steady if not propel it higher at some point in 2021,” Payne said.
Higher meat prices show that pork packers likely will have to pay up for hogs, said Dennis Smith, senior account executive at Archer Financial Services Inc. in Chicago.
“Packers are short of product,” he said. “Butcher hog numbers are projected to drop off along with weights.”
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